High‐Cost Credit and Consumption Smoothing

Christine L. Dobridge

Journal of Money, Credit and Banking, 2018, vol. 50, issue 2-3, 407-433

Abstract: In this paper, I show that high‐cost credit helps households smooth consumption following periods of temporary financial distress. After experiencing distress—that is, extreme weather events—I find that access to high‐cost payday lending mitigates declines in overall spending and nondurable goods spending generally. The results are particularly concentrated among households with a higher propensity to use payday credit or that have limited alternatives: lower income households, households with less than a college degree, and households with low levels of saving. These results highlight the consumption‐smoothing role that high‐cost credit plays for households with limited access to other types of credit.

Date: 2018
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https://doi.org/10.1111/jmcb.12465

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:50:y:2018:i:2-3:p:407-433

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